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Steps in Strategy Formulation Process

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Strategy formulation refers to the process of choosing the most appropriate course of actionfor the realization of organizational goals and objectives and thereby achieving the

organizational vision. The process of strategy formulation basically involves six main

steps. Though these steps do not follow a rigid chronological order, however they are very

rational and can be easily followed in this order.

1. Setting Organizations objectives - The key component of any strategy statement

is to set the long-term objectives of the organization. It is known that strategy is

generally a medium for realization of organizational objectives. Objectives stress

the state of being there whereas Strategy stresses upon the process of reaching

there. Strategy includes both the fixation of objectives as well the medium to be

used to realize those objectives. Thus, strategy is a wider term which believes in the

manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which

influence the selection of objectives must be analyzed before the selection of objectives.

Once the objectives and the factors influencing strategic decisions have been

determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment - The next step is to evaluate the general

economic and industrial environment in which the organization operates. This includes

a review of the organizations competitive position. It is essential to conduct aqualitative and quantitative review of an organizations existing product line. The

purpose of such a review is to make sure that the factors important for competitive

success in the market can be discovered so that the management can identify their own

strengths and weaknesses as well as their competitors strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of

competitors moves and actions so as to discover probable opportunities of threats to its

market or supply sources.

3. Setting Quantitative Targets - In this step, an organization must practically fix the

quantitative target values for some of the organizational objectives. The idea behind thisis to compare with long term customers, so as to evaluate the contribution that might be

made by various product zones or operating departments.

4. Aiming in context with the divisional plans - In this step, the contributions made by

each department or division or product category within the organization is identified

and accordingly strategic planning is done for each sub-unit. This requires a careful

analysis of macroeconomic trends.

5. Performance Analysis - Performance analysis includes discovering and analyzing the

gap between the planned or desired performance. A critical evaluation of the

organizations past performance, present condition and the desired future conditions

must be done by the organization. This critical evaluation identifies the degree of gap

that persists between the actual reality and the long-term aspirations of the organization.

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An attempt is made by the organization to estimate its probable future condition if the

current trends persist.

6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course

of action is actually chosen after considering organizational goals, organizational

strengths, potential and limitations as well as the external opportunities